This paper analyzes the impact of demutualization on stock market liquidity using annual data available from 24\ndemutualized and 26 mutual stock exchanges for the period 1990 to 2011. We use a panel data regression model to\nexamine the nature and significance of the relationship between stock exchange demutualization and two measures\nof stock market liquidity (turnover rate and the value of volume traded relative to Gross Domestic Product (GDP).\nThe findings indicate that demutualized exchanges exhibit significantly greater liquidity compared to mutual\nexchanges after controlling for age, size, trading technology, and level of economic development. We also observe\nthat, world-wide, the trend has been that automation of trading precedes demutualization, and that the time between\nautomation and demutualization has a positive but statistically insignificant effect on liquidity. The study is a\nremarkable departure from the traditional focus on the exchange governance effects of demutualization.\nFurthermore, it contributes to the literature on financial market development by documenting some of the key drivers\nof stock market liquidity, which in itself is a widely acknowledged driver of economic growth.
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